Utilities Industry Report - Valuentum

VALUENTUM SECURITIES

March 7, 2022

Authored by:

The Valuentum Team

Utilities Industry Report

Many utilities offer investors nice dividend yields supported by relatively stable operations. The rising interest-rate environment could pose pressure on

valuations across the sector, however.

http://valuentumbrian.tumblr.com/post/101850892710/www.valuentum.com

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Utilities Industry Report Utilities provide an essential service, generally operate in a near-monopoly position, and benefit from significant barriers to entry due to the capital intensity of new projects and regulatory/environmental requirements. Regulatory frameworks differ across the grid, but most utilities benefit from an assured rate of return on capital investments through predetermined rate structures, where cost adjustments are made by authorities periodically. Most constituents benefit from stable operations and generally lower debt financing, though credit ratings should be monitored closely. We like the structure of the group.

Table of Contents Al lete (ALE) ……………………………………………………………………………………………………………………………2 Al l iant Energy Corp (LNT) ………………………………………………………………………..……………………………3 Ameren (AEE) ……………………………………………………………………………………………..…………………………4 American E lectr ic (AEP)…………………………………………………………………………………………………………5 CenterPoint (CNP) …………………………………………………………………………………………………………………7 CMS Energy (CMS) ………………………………………………………………………………………………………………..8 Consol idated Edison (ED)……………………………………………………………………………………………………..9 Dominion Energy (D) .……………………………………………………………………………………….………………….11 DTE Energy (DTE) ……………………………………………………………………………………………………………….12 Duke Energy (DUK) …………………………………………………………………………………………………..…………13 Edison Internat ional (EIX) ………………………………………………………………………………………………….15 Entergy (ETR) ……………………………………………………………………………………………………………….…….16 Eversource Energy (ES) ………………………………………………………………………………………………………18 Exelon (EXC) ……………………………………………………………………………………………………………………….19 First Energy (FE) …………………………………………………………………………………………………………………20 MGE Energy (MGEE) ……………………………………………………………………………………………………………21 Nat ional Gr id (NGG) ……………………………………………………………………………………………………………23 NextEra (NEE) …………………………………………………………………………………………………………………….24 NiSource (NI ) ……………………………………………………………………………………………………………………..26 PG&E (PCG) …………………………………………………………………………………………………………………………27 Pinnacle West (PNW) ………………………………………………………………………………………………………….28 PPL (PPL) …………………………………………………………………………………………………………………………….29 Publ ic Serv ice (PEG) …………………………………………………………………………………………………………..30 Sempra Energy (SRE) ………………………………………………………………………………………………………….32 South Jersey Industr ies (SJ I ) ….………………………………………………………………………………………….33 Southern Co (SO) ………………………………………………………………………………………………………………..34 Spire (SR) ……………………………………………………………………………………………………………………………36 WEC Energy Group (WEC) .………………………………………………………………………………………………….37 Xcel Energy (XEL) ……………………………………………………………………………………………………………….38

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Allete (ALE)

By 2050, Allete aims to provide its customers with carbon-free energy and is investing heavily in wind and solar energy developments at its merchant power business, Allete Clean Energy, to meet that target.

Investment Considerations

• Allete is a provider of energy in the upper Midwest and has a strategic investment in the American Transmission Company. Allete's Minnesota Power electric utility serves 145,000 residents and 16 municipalities. Other businesses include BNI Coal in North Dakota; Allete Clean Energy; Allete Properties; Superior Water, Light & Power in Wisconsin; and Allete Renewable Resources.

• Allete is targeting consolidated average annual earnings growth of 5%-7% annually while maintaining a competitive dividend that grows in-line with earnings and a 60%-70% payout ratio. The firm's dividend objective is to have a dividend payout similar to its peer group and provide for future increases.

• The company plans to grow its renewable energy business significantly over the coming years with an eye towards wind, solar, and battery storage endeavors. Allete aims to have its power generation operations be 70% carbon free by 2030 and 100% carbon free by 2050. Growth at its merchant power operations is expected to significantly outpace growth at its regulated utility operations, which will introduce risks to its earnings quality over time.

• Allete has solid investment grade issuer credit ratings (Baa1/BBB) however, we caution that S&P downgrade its issuer rating from BBB+ to BBB with a stable outlook back in April 2020. Previously, Moody’s downgraded Allete’s issuer rating for A3 to Baa1 with a stable outlook back in March 2019. Going forward, Allete’s balance sheet needs to be monitored.

• From 2021-2025, Allete intends to spend ~$1.6 billion on its capital investments to modernize the electricity grid and grow its renewable energy power generation capacity. The firm has identified ~$2.0-4.0 billion in additional capital investment opportunities and views its development pipeline as robust.

Dividend Considerations

Allete has a long-term dividend payout ratio of 60%-70% and expects its dividend will grow alongside its earnings over the long haul.

Allete benefits from regulated/contractual/recurring energy revenues and has a long history of consecutive annual dividend payments stretching back to 1948. The utility company targets dividend growth to align with earnings expansion, which it expects to be in the 5%-7% range on average moving forward. Allete’s investment-grade issuer credit rating (Baa1/BBB) has been downgraded a few times since 2019, which is concerning. The company has its eyes on ~$1.6 billion of planned capital expenditures in aggregate from 2021-2025, though Allete has also located other potential projects not included in that figure as Allete is aggressively building out its renewable energy business. Management is targeting a 60%-70% dividend payout ratio to provide for future increases.

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Most large public utility holding companies have raw, unadjusted cash-flow-derived Dividend Cushion ratios below 1, indicating that future expected free cash flows over the near term are completely absorbed by net debt obligations and future expected dividend payments. Utilities’ high dividend payout ratios (dividends paid per share divided by earnings per share) and elevated capital outlays--both of which prevent the buildup of cash on the balance sheet--coupled with the ballast of hefty debt obligations, which are higher on the capital structure than any equity concerns, prevent most utilities from receiving a healthy Dividend Cushion ratio, a pure financial-statement based comprehensive assessment of the coverage of the dividend.

Alliant Energy Corp (LNT)

Alliant Energy aims to grow its adjusted EPS by 6% annually in 2022 at the midpoint of guidance and has grown its adjusted EPS within its 5%-7% long-term annual growth target every year for more than a decade as of 2021.


• Alliant Energy is a utility holding company, providing regulated electricity and natural gas services to residential, commercial, industrial, and wholesale customers in the Midwest region of the US. Its IPL and WPL subsidiaries provide services to 975,000 electric and 420,000 gas customers. The company was founded in 1917 and is headquartered in Madison, Wisconsin.

• Alliant Energy, like many of its peers, is now aggressively touting its ongoing transformation away from coal and towards renewable energy (solar plants, wind farms, and battery storage assets) supported by natural gas-fired power plants. By 2030, the firm forecasts that 53% of its power generation capabilities (both company-owned capacity and power purchased from third-parties) will come from renewables and 40% will come from natural gas. The company aims to grow its EPS by 5%-7% annually over the coming years.

• Part of Alliant Energy’s transformation involves improving its cost structure over time as Alliant Energy forecasts that it will reduce its O&M expenses by 3%-5% per year going forward. Expects improvements in its cost structure support Alliant Energy’s adjusted EPS growth outlook. Management aims for a dividend payout ratio of 60%-70% over the long-term, supported by rate regulated operations.

• Alliant Energy expects to spend ~$6.1 billion on capital expenditures from 2022 to 2025, with around 40% of that expected to go towards developing solar farms, wind farms, and battery storage assets. From 2020-2024, Alliant Energy intends to retire 1.3 GW of coal-fired capacity and bring 1.5GW of solar energy capacity online. By 2024, Alliant Energy aims to have renewable energy represent 24% of it rate base while coal is expected to drop down to 4% during this period.


Capital expenditures going towards power generation and electricity distribution projects represent the bulk of Alliant Energy’s medium-term investment plans, with a relatively modest sum allocated towards its natural gas distribution assets.

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We're fans of Alliant Energy Corp's regulated rate base, which continues to grow as the firm sinks more capital into it. The firm expects to spend ~$6.1 billion on capital expenditures from 2022-2025, a meaningful portion of which is expected to go towards various renewable energy developments and electricity distribution endeavors. Management is targeting a payout ratio of 60%-70% of consolidated earnings, and we are expecting ongoing growth in the company's payout. Alliant Energy boasts an investment grade issuer credit rating (Baa2/A-) with stable outlooks. We are expecting ongoing increases in the payout, but the firm's balance sheet needs to be monitored.


Ameren (AEE)

Ameren’s longer term forecasts call for its diluted EPS to post 6%-8% CAGR and its rate base to post ~7% CAGR from 2022-2026.


• Ameren is a fully-regulated, diversified regional electric and gas utility that boasts low-cost operations in Illinois and Missouri. The company has four businesses: Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission. It was founded in 1881 and is headquartered in St. Louis, Missouri.

• It serves 2.4 million electric and over 0.9 million gas customers across a 64,000 square mile service area. The utility expects to invest ~$17.3 billion in infrastructure for its regulated operations from 2022-2026. Management claims a strong long-term infrastructure investment pipeline beyond 2026 with an eye towards modernizing Ameren’s gas and electric transmission networks, along with plenty of renewable energy developments as well.

• Management expects Ameren’s rate base to expand to ~$29.6 billion by year-end 2026 from ~$21.1 billion at year-end 2021, good for a ~7% CAGR at its rate base. The company’s Ameren Missouri segment represented about half of Ameren’s total rate base in 2021. Ameren expects the rate base of its Ameren Transmission segment to achieve a 9.9% CAGR from 2021-2026, followed by Ameren Illinois Natural Gas at 6.8% CAGR, Ameren Missouri at 6.5% CAGR, and Ameren Illinois Electric Distribution at 5.5% CAGR. By 2026, electric transmission and distribution operations are expected to represent ~72% and coal-fired power generation assets are expected to represent ~6% of Ameren’s total rate base.

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• Ameren has a strong earnings growth outlook. From 2022-2026, the firm expects its diluted EPS will achieve 6%-8% CAGR due to expected growth at its rate base.

• Ameren prides itself on a successful tradition of financial strength, cost containment, low rates, and highly-rated customer service, as well as more than 100 years of cash dividend payments to shareholders. Over the coming years, Ameren intends to significantly grow its regulated renewable energy portfolio. The firm exited the merchant power generation space in 2013.


Ameren’s earning profile is of high quality due to the company exiting the merchant power generation space in 2013, resulting in a utility that only focuses on rate regulated assets.

Ameren is a fully rate-regulated electric utility. Since cutting the dividend in 2009 to preserve cash and coverage metrics amid higher maintenance/operating costs and regulatory capital requirements, Ameren has grown the dividend in recent years and looks poised to continue to do so. Management has stated that future dividend growth will be driven mainly by earnings growth and cash flows, which is good news because it is expecting EPS growth of 6%-8% per annum through 2026 and rate base growth of ~7% through 2026 which should pave the way for more dividend increases as it is targeting a payout ratio of 55%-70% of annual earnings. Ameren has satisfactory investment grade issuer credit ratings (Baa1/BBB+) and the company’s capitalization target of ~45% equity should keep credit resilient.

Most large public utility holding companies have raw, unadjusted cash-flow-derived Dividend Cushion ratios below 1, indicating that future expected free cash flows over the near term are completely absorbed by net debt obligations and future expected dividend payments. Utilities’ high dividend payout ratios (dividends paid per share divided by earnings per share) and elevated capital outlays--both of which prevent the buildup of cash on the balance sheet--coupled with the ballast of hefty debt obligations, which are higher on the capital structure than any equity concerns, prevent most utilities from receiving a healthy Dividend Cushion ratio, a pure financial-statement based comprehensive assessment of the coverage of the dividend. American Electric (AEP)

In February 2022, American Electric announced plans to divest a portion of its merchant power generation business to focus on its regulated utility operations.


• American Electric is one of the biggest electric utilities in the US. It operates the largest electricity transmission system in the US along with 220,000+ miles of distribution “wires” that deliver power to 5.5 million customers in 11 states. It also owns a significant amount of power generation assets, though AEP is in the midst of a major transition as it’s prioritizing its rate regulated utility businesses.

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• Other than its large “wires” business, AEP also has a sizable merchant power generation business and regulated power generation business. In October 2021, AEP announced it was divesting its Kentucky operations, Kentucky Power and AEP Kentucky Transco, through a deal worth ~$2.85 billion by enterprise value. That deal is expected to close in the second quarter of 2022. In February 2022, AEP announced plans to divest a portion of its merchant power generation business and step up its capital investments towards its transmission operations.

• Going forward, AEP plans to grow its regulated utility operations which includes its transmission, distribution, and regulated renewable power generation operations. From 2022-2026, AEP intends to spend ~$38 billion on its capital expenditures. Divestment proceeds will help AEP fund its capital investments.

• Management is committed to delivering 6%-7% earnings growth on an annual basis over the long haul largely due to expected growth in its rate base, a product of its massive capital expenditure expectations.

• AEP has investment grade senior unsecured credit ratings (Baa1/BBB+/BBB+) though its credit rating is on downgrade watch. Moody’s downgraded AEP’s credit rating in August 2020.


American Electric is selling its Kentucky operations through a deal worth ~$2.85 billion by enterprise value that is expected to close in the second quarter of 2022.

American Electric has paid a quarterly dividend over the past 110+ consecutive years, though it was forced to cut its payout back in 2003. Moving out of the merchant power generation space, which AEP announced was the goal in February 2022, is expected to improve its earnings quality. Over the long haul, AEP aims to grow its earnings by 6%-7% annually by growing its rate base. Its targeted payout ratio of 60%-70% combined with its promising growth outlook supports AEP’s dividend growth trajectory. Investors should monitor the firm's regulated rate base as it relates to the consistency of returns and ultimately dividend potential.


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CenterPoint Energy (CNP)

CenterPoint Energy is working towards selling off its remaining equity stake in Energy Transfer by the end of 2022.


• CenterPoint Energy is an energy delivery company that includes electric transmission and distribution, natural gas distribution and energy services operations. The company serves more than 7 million metered customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, Texas, Indiana, and Ohio. CenterPoint has been optimizing its asset base in recent years.

• In December 2021, CenterPoint sold its stake in Enable Midstream Partners and Enable GP to Energy Transfer in return for common and preferred units Energy Transfer along with a negligible amount of cash. By the end of 2022, CenterPoint intends to sell off its remaining equity stake in Energy Transfer as it pivots towards becoming a pure rate regulated utility.

• Through 2024, CenterPoint aims to grow its EPS by 8% annually. Additionally, CenterPoint is targeting 6%-8% annual EPS growth through 2030. Expected growth in its rate base and keeping a lid on its O&M expenses underpins the firm’s earnings growth outlook. From 2021-2025, CenterPoint has ~$19.2 billion in planned capital expenditures and its longer term development pipeline is robust.

• The utility generally operates within economically-vibrant service territories with expectations for continued customer growth and cost discipline, and we like the rate-regulated investment opportunities that should come along with its February 2019 purchase of Vectren. The deal has also reduced business risk by increasing scale, enhancing geographic and business diversity, creating opportunities for efficiencies, and increasing the percentage of regulated utility earnings.

• CenterPoint does not see the need to issue a meaningful amount of equity for the foreseeable future. Exiting the midstream space, where financial performance tends be significantly more volatile than that of the rate regulated utility space, will see CenterPoint’s earnings quality and cash flow profile improvement considerably.


CenterPoint cut its dividend in 2020, highlighting risks in its payout and one of the reasons why the firm aims to become a pure play utility.

CenterPoint's core operations include its electric transmission and distribution assets, its rate regulated utility operations that have predictable earnings profiles. The company is in the process of completely exiting the midstream space, which should improve its earnings and cash flow profile considerably as it becomes a pure rate regulated utility. The company’s senior unsecured debt has a solid investment grade credit rating (Baa2/BBB/BBB) with stable outlooks. CenterPoint cut its dividend in 2020, highlighting risks in its payout. Expected growth in CenterPoint’s rate base along with cost control measures, with an eye towards its O&M expenses, are forecasted to drive its EPS higher by 6%-8% annually through 2030.

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CMS Energy (CMS)

CMS Energy has identified $200+ million in cost saving opportunities by retiring aging assets, adjusting certain long-term contracts, and other initiatives.


• CMS Energy is an energy company principally focused on utility operations in Michigan. The company was founded in 1987 and is headquartered in Jackson, Michigan. Its clean energy goals include zero net methane emissions by 2030 and zero net carbon emissions by 2040. CMS Energy’s electric utility and gas utility businesses serve 6.8 million Michigan residents. Its subsidiary CMS Enterprises Company has economic interests in independent power generation and other assets in various US states and select international markets.

• CMS plans to invest ~$14.3 billion in the five-year period from 2022-2026, expected to break down as follows: $6.4 billion towards its gas utility, $2.8 billion towards renewable energy generation projects, and $5.1 billion towards its electric utility. The firm’s coal-fired power generation exposure is on the decline.

• Over the long haul, CMS intends to grow its adjusted EPS by 6%-8% annually. The company’s senior unsecured credit rating is investment grade (Baa2/BBB/BBB) with stable outlooks, though we caution Moody’s downgraded CMS’ credit rating in May 2021. Maintaining its investment grade credit rating is a top priority for CMS going forward.

• A focus on continuous operating and maintenance (‘O&M’) cost reductions and expected rate base growth will be key to growing CMS’ earnings going forward. Though 2025, CMS is targeting ~7% annual rate base growth, a product of its large capital expenditure expectations and efforts to realizing $200+ million in cost savings over the coming years. Retiring aging assets is expected to play a significant role in the company’s efforts to improve its cost structure and in CMS’ plan to become a carbon neutral entity by 2040. Major investments in renewable energy endeavors will also play a role here.

• CMS operates EnerBank, an industrial bank based in Utah, which primarily offers unsecured, fixed-rate loans for home improvement projects. The company plans to build 200 fast charging locations for electric vehicles (‘EVs’) through 2024 as part of its broader clean energy program.

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CMS plans to grow its adjusted EPS and dividends per share by 6%-8% annually over the long haul while maintaining its investment grade credit rating.

Management has become increasingly more shareholder-friendly since 2007, in which the company had a 25% dividend payout ratio, to 2020 where CMS paid out over 60% of its earnings. Looking ahead, management is guiding the dividend to grow in pace with earnings expansion, at a 6%-8% annual growth rate moving forward. CMS has both cut and fully suspended its dividend in the past, which is concerning, though the company’s outlook has improved considerably in recent years. While CMS has a solid investment grade senior unsecured credit rating (Baa2/BBB/BBB), we caution that Moody’s cut its credit rating in May 2021. Going forward, CMS intends to invest billions towards its renewable energy endeavors as it seeks to become net carbon neutral by 2040.


Consolidated Edison (ED)

Consolidated Edison is targeting 5%-7% annual adjusted EPS growth over the next five years based on its guidance for 2022.


• Con Edison is a holding company that owns CECONY, which delivers electricity, natural gas, and steam to customers in New York City, O&R, which delivers electricity and natural gas to customers primarily located in southeastern New York, Northern New Jersey and northeastern Pennsylvania, and competitive energy businesses.

• CECONY accounts for roughly 85%-90% of Consolidated Edison's non-GAAP earnings, and over 90% of the parent's non-GAAP earnings are of the regulated variety, offering a degree of stability to its business. Its large, regulated rate base enables the firm to be the consistent dividend payer that it is. Consolidated Edison completed the first phase of its divestment of Stagecoach Gas Services in July 2021, with the second phase set to be completed in the first quarter of 2022.

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• Consolidated Edison is one of the few publicly-traded T&D-focused utility companies and boasts 45+ consecutive years of dividend increases. It has a relatively strong balance sheet for a utility and historically the company has kept a nice cash and cash equivalents position on hand. Consolidated Edison has a senior unsecured investment grade credit rating (Baa2/BBB+/BBB+) though we caution its credit rating is on downgrade watch.

• By 2040, Consolidated Edison aims to generate 100% of its power through renewable energy operations. From 2022-2024, Consolidated Edison intends to spend ~$15.7 billion on its capital expenditures, with ~30% of that going towards green energy initiatives. Additionally, Consolidated Edison is investing around $2.0 billion through 2030 to strengthen the energy-delivery systems of its utilities in the face of rising instances of severe weather events.

• Using 2021 as a baseline, Consolidated Edison aims forecasts ~7.6% CAGR in its rate base from 2022-2024. Looking ahead, Consolidated Edison forecasts 5%-7% CAGR in its adjusted EPS over the next five years based on its guidance for 2022. Forecasted adjusted EPS growth should support the company’s dividend growth trajectory over the coming years.


Consolidated Edison targets a long-term dividend payout ratio of 60%-70% of its adjusted earnings.

Consolidated Edison is the only utility company in the S&P 500 with 45+ years of consecutive dividend increases, a result of its consistent earnings growth. Going forward, forecasted earnings growth underpins the firm’s dividend growth trajectory. Over 90% of Consolidated Edison’s non-GAAP earnings come from the regulated utilities it operates (Con Edison Company of New York and Orange and Rockland). While it has solid investment grade credit ratings, we caution that Consolidated Edison’s secured unsecured credit rating is on downgrade watch. The firm targets a long-term dividend payout ratio of 60%-70% of its adjusted earnings, though its payout ratio jumped above that level in 2020 and 2021.


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Dominion Energy (D)

Dominion Energy announced it was selling its West Virginia natural gas utility, Hope Gas, for just under $0.7 billion in February 2022.


• Dominion Energy found its calling in the electric utility business in 1909. A merger with Consolidated Natural Gas in 2000 brought to Dominion a century of valuable experience in the gas-production and gas transportation areas of the Appalachian Basin. It is headquartered in Richmond, Virginia.

• The firm is one of the US' largest producers and transporters of energy as Dominion supplies ~7 million customers across 13 states with electricity or natural gas. Dominion’s portfolio includes over 30GW of electricity generation capacity, 10,700 miles of electric transmission lines, 78,000 miles of electric distribution lines, and 95,700 miles of natural gas distribution lines along with gas transmission gathering, and storage assets. Its issuer credit rating is investment grade (Baa2/BBB+/BBB+) with stable or positive outlooks.

• Dominion plans to invest ~$37 billion from 2022-2026 towards its capital expenditures which is expected to generate ~9% CAGR in its rate base during this period. Regulated wind farm power generation assets represent a big growth opportunity for Dominion as the company continues to phase out coal-fired power plants from its portfolio. At its merchant power business, Dominion is focused on growing its contracted solar power generation asset base as it aims to become net carbon neutral by 2050. Through 2026, Dominion aims to grow its EPS by 6.5% annually, aided by expected rate base growth.

• In recent years, Dominion has been reshaping its asset base. At the start of 2019, Dominion completed its acquisition of SCANA. In 2020, Dominion sold off its equity interest in the Cove Point LNG export terminal in Maryland, and in 2021, the firm divested its Quester Pipeline business. Going forward, Dominion forecasts that ~90% of its operating earnings will come from its rate regulated utility assets, providing for a more stable earnings profile.

• After sharply cutting its payout in 2020 in the wake of years of unsustainable dividend increases, Dominion is targeting a long-term annual dividend growth rate of ~6.5%. Recent divestments significantly improved its balance sheet strength, though there remains ample room for improvement.


Dominion is targeting 6% annual growth in its dividends per share and 6.5% annual growth in its operating earnings per share through 2026, made possible by forecasted rate base growth and its pivot towards rate regulated utilities.

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Dominion Energy has paid a dividend for 30+ years, which has been driven by its regulated rate base. However, strong payout growth in the recent past resulted in an unsustainable payout that management was forced to cut in 2020. While the company aims to grow its per share dividend by 6% annually through 2026, we caution that Dominion’s large net debt load, hefty capital expenditure requirements, and large payout obligations even at the reduced rate are quite concerning. Over the long haul, management aims for Dominion to have a ~65% payout ratio. Dividend growth will be a function of earnings growth and the firm’s EPS is expected to grow by 6.5% annually through 2026.


DTE Energy (DTE) In July 2021, DTE Energy completed the spinoff of DTE Midstream and is now working on growing its electric and gas utility businesses.


• DTE Energy is an integrated energy company with most of its business coming from stable regulated utility operations. Its electric utility business serves 2.2 million customers in southeastern Michigan and its gas utility business serves 1.3 million customers in Michigan. In July 2021, DTE completed the spinoff of its midstream business, DTE Midstream, in a move that should result in a more stable earnings profile as DTE pivots towards its regulated utility operations.

• The company is replacing coal-fired power plants with solar and wind farms while maintaining its natural gas, nuclear and hydroelectric pumped storage power generation capacity. DTE is targeting net zero emissions by 2050. The company is investing in several renewable natural gas (‘RNG’) projects across the US through its DTE Vantage unit.

• DTE plans to spend ~$15 billion on capital expenditures at DTE Electric, $3.1+ billion at DTE Gas, and $1.0-1.5 billion at DTE Vantage from 2022-2026. Expected rate base growth at its regulated utilities and growth at its green energy operations are expected to help DTE grow its operating EPS by 5%-7% annually through 2026. From 2022-2031, DTE sees ~$35 billion in capital investment opportunities at DTE Electric alone, highlighting the company’s extensive growth runway. The firm views the proliferation of EVs in the US as a major growth opportunity.

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• During the 2022-2026 period, a large chunk of DTE’s planned capital investments are going towards modernizing the electric grid and ensuring its gas pipelines are well-maintained. Roughly 80% of its planned capital investments during this period at its DTE Electric unit are allocated on projects involving its distribution and base infrastructure. The remainder is expected to go towards growing DTE Electric’s renewable power generation capacity.

• DTE has an investment grade unsecured credit rating (Baa2/BBB/BBB) though we caution that Fitch downgraded its credit rating in April 2020 from BBB+ to BBB. The company plans raise $1.3-$1.5 billion through equity raises from 2022-2024.


DTE Energy cut its dividend in 2021 in the wake of the spinoff of DTE Midstream.

DTE Energy and its subsidiaries primarily operate regulated electric and gas utilities throughout Michigan. The utility completed the spinoff DTE Midstream in July 2021. Going forward, DTE forecasts that its regulated utility operations will generate over 90% of its operating earnings (with DTE Vantage making up the remainder), up from ~70% before the spinoff. Over the long haul, DTE intends to maintain a payout ratio and dividend growth rate consistent with pure-play regulated utilities. Over the past 100+ consecutive years, DTE has paid out a dividend. We caution that in the wake of the spinoff DTE Midstream, DTE cut its dividend in 2021 though the company has since resumed its payout growth trajectory.


Duke Energy (DUK)

Duke Energy generates ~95% of its adjusted earnings from rate regulated utilities with commercial renewables making up the remainder.


• The merger between Duke Energy and Progress Energy created one of the largest US utilities. The firm's regulated utility operations serve 7.9 million electric retail customers located in six states in the Southeast and Midwest (NC, SC, IN, OH, KY, FL). Its operations are supported by 51,000 MW of power generation capacity in the Midwest, the Carolinas, and Florida. Duke Energy acquired Piedmont Natural Gas in 2016, and now provides gas distribution services to over 1.6 million customers in five states (NC, SC, OH, KY, TN).

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• Duke boasts significant scale, diversity, and expertise as its strengths. Size doesn't guarantee success, but Duke has been adapting through its 115+ year history. Management continues to effectively adjust to changes in technology, fuel prices, and regulations.

• The firm's regulated utility operations represent ~95% of its total adjusted earnings. Duke forecasts that its adjusted diluted earnings per share will grow by 5%-7% annually from 2022-2026, underpinned by the company’s expectations that its rate base will grow by ~7% CAGR on the back of ~$63 billion in planned capital expenditures during this period. Duke’s investment grade issuer credit ratings are solid (Baa2/BBB+) with stable outlooks.

• Back in 2005, 60% of Duke’s power generation came from coal- and oil-fired power plants. In 2020, only 21% of Duke’s power generation came from these fuel sources as the firm pivoted towards natural gas, nuclear, and renewables. By 2035, Duke plans to fully exit the coal-fired power generation space.

• Duke aims to achieve net zero carbon emissions by 2050 and is investing heavily in its renewable energy power generation capacity while retiring coal-fired power plants to achieve that lofty goal.


Duke Energy targets a dividend payout ratio of 65%-75% of its adjusted EPS over the long haul.

Duke Energy has an impressive dividend track record, having paid a quarterly dividend for 95+ consecutive years. Over the long haul, Duke targets a dividend payout ratio of 65%-75% and its payout should grow alongside its adjusted earnings. From 2022-2026, Duke forecasts that ~7% CAGR in its rate base will drive its adjusted EPS up 5%-7% annually, aided by expected improvements in its cost structure as Duke is working hard to keep a lid on its O&M expenses. Duke’s issuer credit rating is investment grade (Baa2/BBB) with stable outlooks largely due to the regulated nature of the vast majority its operations.


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Edison International (EIX)

Edison International has faced enormous headwinds from natural disasters in California in recent years, and its wildfire mitigation spend is now quite material.


• Edison International is a holding company of Southern California Edison (‘SCE’), a regulated electric utility, and Edison Energy, a non-regulated energy services company. SCE is one of the largest electric utilities in the US and caters to 15 million people across a 50,000 square mile service area in Southern California. Edison International (Baa3/BBB/BBB-) and SCE (Baa2/BBB/BBB-) both have investment grade credit ratings.

• The utility continues to run into regulatory hurdles, such as the situation around its San Onofre facility. That nuclear power plant permanently ceased operations in 2013 and decommissioning activities are ongoing. In August 2018, fuel transfer operations were halted and didn’t receive approval to continue the process until July 2019. Inspectors noted in their report that Edison had been negligent in handling the removal of spent nuclear fuel rods from the facility. We caution that Edison will need to improve its safety measures or face serious potential liabilities.

• After a serious of deadly wildfires over the past few years, California has fundamentally altered the regulatory landscape for utilities operating in the state. That process included creating a wildfire insurance fund to help deal with future disasters (via AB-1054 which saw signed into law in 2019). While this effectively created a new annual expense for Edison International, the move resulted in significantly more certainty in an industry that desperately needed it.

• Investors should expect the firm to plough ~$21.6 billion in capital into SCE from 2022-2025. As a result, SCE is expecting ~7%-9% annual growth in its rate base during this period and for SCE to post 5%-7% CAGR in its core EPS. Most of its capital expenditures are going towards upgrading SCE’s distribution network to improve grid reliability and reduce the chance that its assets could cause a natural disaster. Wildfire mitigation spend has beyond significant in recent years.

• Edison is positioning itself as an integrator for energy as a service platform for such customers. Investments in grid modernization, energy storage, and electrification of transportation and other sectors are being pursued. By 2045, SCE aims to deliver 100% carbon-free electricity to its customers to meet state regulatory requirements.


Edison International targets a long-term dividend payout ratio of 45%-55% of SCE’s core earnings.

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Edison International’s largest subsidiary, Southern California Edison (‘SCE’), is one of the largest electric utilities in the United States with about 15 million residents in its service territory. From 2021-2025, Edison expects the rate base of SCE will grow by around 7%-9% annually, supported by large capital expenditure expectations. Edison’s target payout ratio is 45%-55% of SCE’s core earnings. Edison was forced to suspend the payout in the early 2000s after the deregulation of the California power market severely impacted results and threatened the health of the firm. The company is focused on modernizing its energy grid going forward and plans for SCE to spend ~$21.6 billion on its capital expenditures from 2022-2025.


Entergy (ETR)

Entergy owns and operates roughly 7,000 MW of nuclear power, making it one of the largest nuclear power generators in the US.


• Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including ~7,000 MW of nuclear power, making it one of the largest nuclear power generators in the US. It delivers electricity to ~3 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy also delivers natural gas to customers in Louisiana. Its operations are supported by roughly 121,600 miles of transmission and distribution lines. Entergy was founded in 1989 and is based in New Orleans, Louisiana.

• Entergy plans to spend ~$12 billion capital from 2022-2024 on distribution and utility support (~$5.8 billion), power generation (~$3.9 billion), and transmission (~$2.3 billion) operations. These investments are expected to improve grid reliability and build up its renewable operations.

• The company's rate base is expected to grow from an estimated ~$33 billion in 2022 to an estimated ~$37 billion in 2024, paving the way for long-term adjusted EPS by 5%-7% annually over the long haul, aided by expected improvements in its cost structure as the firm works towards keeping a lid on its O&M expenses.

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• Entergy's strategy moving forward includes the management of risk through safe investments and regulatory execution while freeing up resources to invest in other opportunities. We like the focus on regulated operations, and a growing rate base will be the basis for growing earnings and dividends moving forward.

• Due to the company’s large nuclear power generation footprint and its growing renewables portfolio, Entergy is well-positioned to adapt to the changing regulatory landscape for electric utilities in the US. By the end of 2030, Entergy intends to retire all its coal-fired power generation capacity. As of 2021, less than 2% of Entergy’s rate base was composed of coal-related assets and less than 5% of its revenues that year came from coal-related assets. The company’s credit rating is investment grade (Baa2/BBB+), though its credit rating is on downgrade watch.


Entergy aims to grow its adjusted EPS and dividend by 5%-7% annually over the long haul.

Entergy's Dividend Cushion ratio is very similar to that of its utility peers. The firm's dividend has grown materially since it was forced to cut the payout in 1998, and management has stated that a stable and predictable trajectory of dividend growth will be targeted going forward. As is the case with most utility companies, rate base and earnings growth are two main factors that support the pace of the firm's dividend growth, and both are expected to grow steadily for the foreseeable future. We're fans of Entergy's focus on regulated operations moving forward due to the increased reliability and visibility that come from regulated operations. Over the long haul, Entergy aims to grow its adjusted EPS and dividend by 5%-7% annually. The company's credit rating is in investment grade territory (Baa2/BBB+), though we caution that Moody’s has its credit rating on downgrade watch.


Eversource Energy (ES)

Eversource Energy is developing offshore wind farms in the US as part of its bid to achieve carbon neutrality by 2030.

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• Eversource, formerly Northeast Utilities, operates New England’s largest utility system and serves ~4.4 million customers. That includes electric and natural gas distribution utilities in Connecticut and Eastern Massachusetts along with electric utilities in Western Massachusetts and New Hampshire. It also provides water utility services in the New England region. Eversource has shown excellence in building highly-complex transmission projects in densely-populated areas, and we think this bodes well for future growth opportunities in the region. The company was founded in 1927 and is based in Springfield, Massachusetts.

• Eversource has an investment grade corporate credit rating (Baa1/A-/BBB+), though we caution that its credit rating is on downgrade watch. In December 2021, Eversource closed its all-stock acquisition of New England Service Company, which provides regulated water utility services to customers in the New England region.

• Eversource is focused on delivering top-tier financial results and growing its rate regulated utilities and contracted renewables power generation businesses, while driving operational efficiencies and reducing costs. Eversource is investing in offshore wind projects in the US as part of its transition towards green energy sources. That includes the South Fork Wind project which will supply wind power to customers in New York starting in 2023. Eversource intends to achieve carbon neutrality by 2030.

• One of the biggest drivers behind Eversource’s long-term annual EPS growth target of 5%-7% is expected growth in its rate base. From 2022-2026, Eversource plans to spend ~$18.1 billion on its capital expenditures which is expected to grow its rate base by ~7.1% annually from the end of 2020 to 2026. Initiatives to improve its cost structure by keeping a lid on its O&M expenses further supports its earnings growth outlook. Historically, Eversource has done a solid job controlling its O&M expenses.

• Going forward, Eversource intends to grow its electric transmission, electric distribution, water utility, and gas utilities operations along with its merchant power business via its large capital expenditure program.


Eversource Energy intends to grow its EPS by 5%-7% annually through 2026, with its dividend expected to grow alongside its earnings.

Eversource Energy is New England’s largest utility system with a solid dividend growth track record. Over the long haul, Eversource Energy aims to steadily grow its rate base which in turn underpins its 5%-7% annual adjusted EPS growth guidance. The company has a strong corporate credit rating (Baa1/A-/BBB+), though we caution that its credit rating is on downgrade watch. Eversource plans to spend ~$18.1 billion in capital expenditures from 2022-2026 which is expected to drive annual rate base growth of ~7.1% from the end of 2020 to 2026. Initiatives to keep a lid on its O&M expenses to improve its cost structure further support its earnings growth outlook. Historically, Eversource’s payout ratio has been in the low 60s% range.

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Exelon (EXC)

In February 2022, Exelon completed the separation of its transmission and distribution utility businesses from its former power generation and competitive energy businesses by spinning off Constellation Energy.


• Exelon is now focused on regulated transmission and distribution utility operations after spinning off its former power generation and competitive energy businesses into Constellation Energy, a new publicly traded entity. Its rate regulated utility operations include Atlantic City Electric (‘ACE’), Baltimore Gas and Electric (‘BGE’), Commonwealth Edison (‘ComEd’), Delmarva Power & Light (‘DPL’), PECO Energy Company (‘PECO’), and Potomac Electric Power Company (‘Pepco’). Through those six natural gas and electric utilities, Exelon serves more than 10 million customers in DE, IL, MD, NJ, PA, and Washington DC.

• Exelon is an important reminder as to why utility dividends aren't always safe after cutting its payout in 2013. Though many utilities boast regulated returns, their operations do not lend themselves to substantial financial flexibility. Credit quality will always take priority over dividend payments at key credit thresholds. Exelon Corporate has investment grade credit ratings (Baa2/BBB/BBB+).

• In 2012, Exelon acquired Constellation Energy (owns Baltimore Gas & Electric) and in 2016, Exelon acquired Pepco for ~$6.8 billion acquisition of Pepco (caters to Washington DC and parts of Maryland). Maintaining investment grade credit ratings is a top financial priority for Exelon going forward, a focus we like.

• Exelon aims to spend ~$29 billion on capital investments from 2021-2025 on its transmission and distribution assets. That is expected to drive annual rate base growth of 8.1% which in turn is forecasted to drive annual operating earnings growth of 6%-8% during this period. Exelon aims to achieve net zero emissions from its operations by 2050. This strategy involves modernizing the electricity grid to boost reliability and modernizing its natural gas pipelines to minimize methane leaks, while making sourcing green energy for its operations a priority.

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Exelon cut its dividend in 2022 after completing the spinoff of its market power generation and consumer facing businesses.

Exelon was forced to cut its dividend in 2013 to maintain its investment grade credit rating and to ensure it had enough capital to invest in its business. After completing the separation of its regulated electric and gas utilities from its market power generation and consumer facing businesses in February 2022, Exelon cut its dividend again. Exelon has a respectable earnings profile given the highly stable nature of the earnings generated from regulated utilities. From 2021-2025, Exelon forecast that it will grow its dividend and operating earnings per share by 6%-8% annually by investing heavily in its rate regulated utilities. Rate base growth is forecasted at 8.1% annually from 2021-2025.


FirstEnergy (FE)

FirstEnergy plans to grow its operating earnings per share by 6%-8% annually over the long haul.


• FirstEnergy's ten electric distribution companies serve 6+ million customers across Maryland, Ohio, New York, Pennsylvania, New Jersey, and West Virginia. Its operations include ~24,000 miles of transmission lines and its service area covers ~65,000 square miles. After exiting the merchant power business, FirstEnergy is now a pure play regulated utility and one of the largest electric utilities in the US. The company was founded in 1996 and is headquartered in Akron, Ohio.

• FirstEnergy is targeting 6%-8% annual growth in its operating earnings per share over the long haul. It plans to grow its rate base by ~6% annually from 2021-2025, made possible through a ~$17 billion capital investment plan during this period. Modernizing its power grid and investing in renewable energy represent two key strategic priorities.

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• FirstEnergy cut its dividend in 2014, an important reminder as to why utility dividends aren't always safe. Though many utilities boast regulated returns, their operations do not lend themselves to substantial financial flexibility. Credit quality will always take priority over dividend payments at key credit thresholds. The Dividend Cushion ratio highlighted the risk of a dividend cut before FirstEnergy slashed the payout.

• Moody’s, S&P, and Fitch all cut FirstEnergy’s credit rating to “junk” territory in 2020 as the utility was the subject of a bribery probe in Ohio that ultimately led to a legal settlement in 2021. FirstEnergy was able to win a credit rating upgrade from S&P in 2021, with Moody’s and Fitch both giving the utility positive credit rating outlooks. The utility’s issuer-level credit rating still sits below junk from two of the ‘Big Three’ rating agencies (Ba1/BBB-/BB+).

• FirstEnergy targets a payout ratio of 55%-65% of its operating earnings, with its dividend expected to grow alongside its earnings. Initiatives to reduce its O&M expenses along with forecasted rate base growth supports FirstEnergy’s earnings growth outlook. By 2050, FirstEnergy aims to be a carbon neutral entity.


FirstEnergy is a pure play regulated electric utility with a stable earnings profile, though the firm still has a lot of work to do to improve its credit rating and put it past legal woes behind it.

FirstEnergy is one of the largest electric utilities in the US. In 2020, Moody’s, S&P, and Fitch all cut FirstEnergy’s credit rating into “junk” territory in the wake of FirstEnergy facing a bribery probe in Ohio, which was later resolved through a legal settlement in 2021. The utility is targeting a long-term payout ratio of 55%-65% going forward. Its operating earnings per share are expected to grow by 6%-8% annually over the long haul, supported by forecasted rate base growth and initiatives to control its O&M expenses. FirstEnergy intends to invest ~$17 billion towards capital expenditures from 2021-2025 to grow its rate base by ~6% annually during this period. The regulated nature of FirstEnergy’s asset base supports its earnings quality.


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MGE Energy (MGEE) MGE Energy is investing heavily in its renewable energy business and intends to exit the coal-fired power generation space by 2035.


• MGE Energy owns Madison Gas and Electric (‘MGE’). MGE distributes electricity in over 260+ square miles of Dane County, Wisconsin (this includes the city of Madison). Electric operations account for ~70% of the firm's regulated utility revenues. MGE also distributes natural gas across ~1,700 square miles in seven south-central Wisconsin counties (includes the city of Madison). It traces its roots back to 1855.

• MGE Energy intends to invest ~$660 million towards capital expenditures on its regulated utility operations from 2022-2024. Roughly half of that is going towards renewable energy endeavors as MGE Energy aims to achieve net zero carbon emissions from its electric utility operations by 2050. A lot of MGE Energy’s electricity is generated from coal-fired power plants, though the firm is working towards growing its renewable energy business. MGE Energy aims to exit the coal-fired power generation space by 2035 as the utility aims to achieve net zero carbon emissions from its electric utility operations by 2050.

• The company’s ‘A-rated’ investment grade credit ratings are stellar and support its ability to tap capital markets at relatively attractive rates. S&P gives MGE a corporate credit rating of AA- with a stable outlook and Moody’s gives MGE an unsecured credit rating of A1 and a secured credit rating of Aa2 with a stable outlook. Rationale for MGE Energy’s strong credit ratings include effective management of regulatory risk, a strong regulatory environment, its focus on regulated, vertically integrated distribution operations, and conservative financial policies that facilitate stable and healthy credit metrics.

• Though MGE Energy boasts a very attractive service area in Madison, the company's operations are highly concentrated on a geographical basis. This exposes the firm to unique regional risks that are not inherent to other more geographically-diverse peers.

• Dividend growth at MGE Energy has been ~5% per year in recent years, with the payout ratio being roughly between 50%-60%. It is important to note that the firm does not have a target payout range, offering the firm flexibility with its dividend.


MGE Energy has increased its dividend over the past 45+ consecutive years.

MGE Energy is a utility holding company that operates in Wisconsin. The firm is a seasoned dividend payer with its dividend payments dating back to 1909. MGE Energy has increased its dividend for 45+ consecutive years. In recent years, MGE Energy has grown its dividend by ~5% annually and its payout ratio has been in the 50%-60% range. MGE Energy’s consistent dividend reflects its strong financial flexibility; the firm has relatively low leverage when compared to other utility companies, and its credit rating remains firmly in investment grade territory.

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Though management has no explicit target payout ratio, it emphasizes a focus on maintaining its reputation as a dividend grower. We expect MGE Energy will continue to grow its payout going forward, though we caution that its operations come with a substantial amount of geographical concentration risk.


National Grid (NGG)

National Grid acquired Western Power Distribution from PPL for roughly GBP£7.8bn in June 2021 and is now in the works of selling its Rhode Island utility to PPL.


• National Grid is one of the world’s largest publicly-owned utilities focused on transmission and distribution activities in electricity and gas in both the UK and US. The firm's returns are among the best in our utility coverage. It was founded in 1990 and is headquartered in London, the United Kingdom.

• From fiscal 2021-2026, National Grid aims to realize 5%-7% CAGR in its EPS with growth expected to come in near or above the top end of that range in fiscal 2022.

• In June 2021, National Grid completed the acquisition of Western Power Distribution (‘WPD’), the UK's largest electricity distribution business, from PPL through a deal with a total equity value of roughly GBP£7.8 billion. National Grid is selling the Narragansett Electric Company (electric and natural gas utility in Rhode Island) to PPL through a deal with an equity value of approximately USD$3.8 billion (roughly GBP£2.7 billion). These transactions will significantly grow National Grid’s exposure to the UK and to electric utility operations while supporting its long-term asset base growth outlook.

• National Grid's capital investments have been robust of late. The company intends to spend around GBP£30-35 billion on capital expenditures from fiscal 2022-2026, with an eye towards green energy initiatives including smart metering, offshore wind, EV infrastructure, and interconnectors. From fiscal 2021-2026, National Grid forecasts 6%-8% CAGR at its asset base, a product of its large development pipeline. Asset base growth is supported to support earnings growth and ultimately enable decent dividend growth.

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• National Grid sports corporate level investment-grade credit ratings across the board (Baa2/BBB/BBB). Though the company has a massive debt load it remains dedicated to maintaining investment-grade status. National Grid is now pursuing the sale of a majority stake in its UK gas transmission business.


National Grid is expected to launch the sales process of a majority stake in its UK gas transmission business during the second half of fiscal 2022.

National Grid expects to grow its dividend alongside its earnings going forward. The company’s robust development pipeline underpins National Grid’s plan to achieve a 6%-8% CAGR in its asset base from fiscal 2021-2026, underpinning its promising earnings growth outlook. National Grid is in the process of divesting a majority stake in its UK gas business and the sales process expected to begin during the second half of fiscal 2022. The firm has investment grade credit ratings (Baa2/BBB/BBB). US investors should be aware of the fact that National Grid’s semi-annual dividend payments on the ADS are subject to exchange rate fluctuations that can impact the realized payout. We caution that potential headwinds from Brexit are still at play, though the UK has secured a partial trade deal with the EU.


NextEra Energy (NEE) NextEra Energy folded Gulf Power Company into Florida Power & Light Company at the beginning of 2022, which could generate meaningful operational synergies over the long haul.


• NextEra Energy’s operations include Florida Power & Light Company (‘FPL’), a regulated electric utility with over 5.7 million customer accounts that serve over 11 million residents in Florida. Its portfolio also includes NextEra Energy Resources, a leader in renewable generation in the US and Canada that owns a sizable economic interest in its merchant power spinoff, NextEra Energy Partners. NextEra Energy was founded in 1984 and is based in Florida.

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• NextEra Energy has a nice investment grade credit rating (Baa1/A-/A-) with stable outlooks from each of the ‘Big Three’ rating agencies. The company’s development pipeline is incredibly robust and represented by a large backlog in the realm of wind, solar, and battery storage projects.

• In May 2018, NextEra announced it was acquiring Southern Company’s Gulf Power Company, Florida City Gas, and the entities owning economic interests in the natural gas-fired power plants Plant Oleander and Plant Stanton in Florida for an aggregate purchase price of ~$6.5 billion (including debt). Those deals were completed in stages in 2018 and 2019. These acquisitions significantly grew NextEra’s exposure to rate regulated utilities.

• From 2019-2022, NextEra intends to invest ~$60 billion towards capital expenditures as it continues to aggressively grow its business. That includes sizable capital investments towards its regulated utility operations in Florida and its merchant power business across the US and Canada. NextEra intends to grow its adjusted EPS by 6%-8% over the coming years using its forecasted 2022 performance as a baseline, which underpins its expectations that it will be able to grow its dividend per share by at least 10% through 2024 using its forecasted 2022 performance as a baseline.

• At the start of 2022, NextEra Energy folded Gulf Power Company into FPL, creating a massive rate regulated utility in Florida. Merging these utilities together could create substantial synergies over the long haul as NextEra Energy is able to integrate solar farm development schemes and maintenance activities across both operations. By the end of 2025, FPL intends to develop 30 million solar panels in Florida as the utility has been shifting away from coal-fired power and towards solar, nuclear, and natural gas, supported by battery storage facilities.


NextEra Energy is developing a vast merchant power business while steadily growing its regulated electric utility business in Florida.

NextEra Energy’s adjusted EPS is expected to grow by ~6%-8% annually through 2025 (off its estimated 2022 performance) which supports management’s plan to grow NextEra’s dividend by at least 10% per year through 2024 (using its forecasted 2022 payout as a baseline). The firm has positioned itself well to capture the coming transition to renewable energy as it has an enormous backlog of wind farm developments, solar plant projects, and battery storage opportunities. More recently, NextEra Energy has been reviewing its potential hydrogen upside.

While NextEra Energy has a massive debt load and runs a capital intensive business, the firm’s investment grade credit rating (A-/Baa1/A-) should help it stay on top of that burden. NextEra Energy’s regulated FPL utility has a bright growth outlook as well, supported by Florida’s promising population and economic growth trajectory. NextEra Energy should be able to realize meaningful operational synergies going forward after folding the operations of Gulf Power Company into FPL at the start of 2022. The utility’s North Florida Resiliency Connection project is developing an electric transmission system that will connect the operations of FPL with the operations that were formerly part of Gulf Power Company.

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NiSource (NI) NiSource generates roughly 40% of its operating earnings from its electric utility businesses and around 60% comes from its natural gas utility businesses.


• NiSource is an energy holding company engaged in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. It is a pure play regulated utility with ~3.2 million electric customers and ~0.5 million natural gas customers. Its companies deliver energy to customers located across six states (IN, OH, PA, KY, VA, and MD) within the high-demand energy corridor that runs from the Gulf Coast through the Midwest to New England.

• The utility is focused on sustainable growth by investing in energy infrastructure projects, new facilities, environmental enhancements, and upgrades to existing facilities to grow its rate base. NiSource places a great emphasis on making it easier for its customers to do business with the firm and expanding access to its natural gas and electric services. The firm has identified ~$40 billion in capital investment opportunities to pursue over the long haul.

• NiSource plans to spend ~$7.7-$8.7 billion on its capital expenditures from 2022-2024 after spending $1.9 billion in 2021. Renewable energy projects are a priority for NiSource as it aims to exit the coal-fired power generation space by 2028. NiSource plans to achieve a 10%-12% CAGR in its rate base from 2021-2024.

• NiSource retains a solid investment grade senior unsecured credit rating (Baa2/BBB+/BBB) with stable outlooks despite its lofty debt load. Management remains committed to preserving NiSource’s investment grade credit rating.

• From 2021-2024, NiSource expects to grow its non-GAAP net operating earnings per share by a 7%-9% CAGR on the back of its growing rate base and the stable nature of regulated utility operations. The company’s goal is to grow its dividend alongside its net operating earnings while maintaining a 60%-70% payout ratio over the long haul.


NiSource has identified ~$40 billion in long-term capital investment opportunities, which supports its earnings and ultimately dividend growth outlook.

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NiSource spun off its natural gas transportation business into a new master limited partnership named Colombia Pipeline Group in July 2015. Following the split, NiSource expects to grow its dividend in line with non-GAAP net operating earnings per share at a 7%-9% CAGR (forecasted growth rate from 2021-2024) and is targeting a dividend payout ratio of 60%-70%. Net operating earnings growth will primarily be a function of expected growth in NiSource’s rate base, which is expected to grow by a 10%-12% CAGR from 2021-2024 on the back of its sizable capital investment program. The company has a solid investment grade senior unsecured credit rating (BBB+/Baa2/BBB), and NiSource has eyes on ~$40 billion in infrastructure investment opportunities, particularly asset modernization efforts.


PG&E (PCG) PG&E has a ~$53 billion capital expenditure budget from 2022-2026, which includes major investments to place its “wires” underground to prevent forest fires.


• PG&E Corp is a holding company whose primary operating subsidiary is Pacific Gas and Electric Company, a public utility operating in northern and central California. The company was founded in 1905 and is headquartered in San Francisco, California. It serves 16+ million customers in an industry where regulatory risk is inescapable.

• The company was forced to run thousands of TV and newspaper ads declaring its guilt in employing lax safety standards in the fatal 2010 explosion in San Bruno, California, and high-level personnel has been sentenced to thousands of hours of community service. This would prove to only be the beginning of its public relations issues and potential penalties.

• PG&E found itself in hot water over its ties to deadly and massive wildfires across northern California over the past few years that ultimately forced the company to file for Chapter 11 bankruptcy protection in 2019. The firm also filed for Chapter 11 bankruptcy protection back in 2001. PG&E replaced most of its board of directors with new members as part of its latest bankruptcy restructuring process. The company still faces meaningful risks from wildfires and potential wildfires in California, though the state’s regulatory environment has changed to take those risks into account. PG&E is participating in California’s state go-forward wildfire fund, which has and will continue to require large contributions from the company.

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• In July 2020, PG&E announced that it had emerged from bankruptcy though its problems are far from over. The company still must make significant additional contributions to the wildfire victims settlement fund. While things are improving, we caution serious headwinds remain for PG&E.


PG&E is targeting a ~9% CAGR in its rate base from 2021-2026, a product of its investment plans, though its dividend remained suspended as of March 2022.

PG&E was forced to suspend its dividend in the fourth quarter of 2017 after "uncertainty related to causes and potential liabilities associated with the extraordinary October 2017 northern California wildfires." California is one of few states that holds utilities liable for property damages and attorney fees even if it is found to have followed established inspection and safety rules. While cash conservation may be most appropriate for the health of its business, income investors are unlikely to forget PG&E’s many problems over the past couple of decades. Preferred dividends have been suspended as well. As of March 2022, PG&E’s dividend payouts remained suspended as it works to repair its financial position, and the firm still has a lot of work to do to repair its credibility.

Pinnacle West (PNW) Pinnacle West is targeting annual EPS growth of 5%-7% over the long haul, a product of expected rate base growth and initiatives to control its O&M expenses.


• Pinnacle West is a holding company that derives essentially all of its revenue and earnings from its wholly-owned subsidiary, Arizona Public Service (‘APS’). APS is a vertically-integrated electric utility (Arizona’s largest and longest-serving) that provides either retail or wholesale electric services throughout most of the state of Arizona. It was founded in 1920 and is headquartered in Phoenix, Arizona.

• To serve customers, APS obtains power through various generation stations and through purchased power agreements. Since the mid-2000s, the company’s power generation mix has transformed dramatically. While coal-fired power is steadily becoming a smaller part of its energy mix (off a high base), with Pinnacle West’s goal being to completely phase out coal from its energy mix by the end of 2031, renewable energy sources are rising as a percentage of its energy mix. Nuclear power and natural gas-fired power plants also key here by providing APS with baseload generation capacity.

• Pinnacle West has a decent credit profile with an investment grade corporate credit rating (Baa1/BBB+/BBB+), though its credit rating was downgraded by both S&P and Fitch in 2021 and remains on downgrade watch.

• The company views Arizona’s economic outlook quite favorably, primarily due to the vibrant nature of the state’s economy and its promising population growth trajectory. However, we caution that Pinnacle West has substantial geographical concentration risk compared to larger utilities. New data center and manufacturing developments in Arizona further support the state’s electricity demand outlook.

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• Management anticipates annual rate base growth of ~5-6% from 2020-2024 as it focuses on its core electric utility business. That is expected to drive its EPS higher by 5%-7% annually over the long haul, aided by APS’ efforts to keep a lid on its O&M expenses. The firm continues to invest in a portfolio that retains flexibility, reliability, and efficiency. Pinnacle West forecasts total capital investment at APS will come in at ~$4.7 billion from 2022-2024, with a heavy focus on transmission, distribution, and clean energy generation operations. By 2024, the rate base of APS is expected to reach around $13.6 billion, up from $10.9 billion in 2020.


Pinnacle West is targeting a dividend payout ratio of 65%-75% of its earnings over the long haul.

Pinnacle West is a utility holding company with essentially 100% of its revenue and earnings coming from its wholly-owned subsidiary, Arizona Public Service (‘APS’). The APS subsidiary boasts a decent credit profile with an investment grade corporate credit rating (A3/BBB+/BBB+), though we caution its credit rating is on downgrade watch and was downgraded in 2021. Pinnacle West’s financial flexibility permits large capital expenditures to provide rate base growth. As a result, APS expects annual rate base growth of ~5%-6% moving forward with a target rate base of ~$13.6 billion in 2024. Rate base growth is expected to drive EPS growth which in turn supports its dividend growth trajectory. The company targets a payout ratio of 65%-75% of its earnings to shareholders through dividends.


PPL (PPL) PPL sold its UK utility business to National Grid and is in the process of acquiring National Grid’s utility business in Rhode Island.


• PPL operates several regulated utilities in the US that deliver electricity to customers in Pennsylvania, Kentucky, and Virginia. Additionally, PPL also operates regulated utilities that distribute natural gas to customers in Kentucky. The company provides services to ~2.5 million customers. In 2021, PPL sold off its UK utility business to National Grid. PPL is in the process of acquiring National Grid’s utility business in Rhode Island, the Narragansett Electric Company, and the deal is expected to close by March 2022. PPL was founded in 1920 and is headquartered in Allentown, Pennsylvania.

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• Using the net cash proceeds its transactions with National Grid generated, PPL launched a share buyback program in 2021 while paying down a meaningful amount of its debt. However, PPL announced a major cut in its dividend in February 2022. The company intends to invest heavily in its regulated Pennsylvania and Kentucky utilities going forward. Louisville Gas & Electric (‘LG&E’), Kentucky Utilities (‘KU’), and PPL Electric Utilities represent PPL’s core rate regulated utility operations and Safari Energy is PPL’s subsidiary that provides solar power solutions for commercial customers in the US.

• PPL needs to prove that its portfolio streamlining process will result in stronger operational execution. There is room for potential improvements in its cost structure due to the company now being a US-focused utility operator. PPL view its development pipeline as robust. In September 2021, PPL announced it had joined the Electric Highway Coalition, a partnership that includes well over a dozen utilities that aim to develop a seamless network of rapid electric vehicle charging stations and the related infrastructure. PPL Corp aims to reach net zero emissions across its business by 2050. By 2035, PPL Corp aims to reduce its greenhouse gas emissions by 70% versus 2010 levels and deliver an 80% cut in its emissions by 2040.

• PPL has a solid investment grade long-term issuer credit rating (Baa2/A-) with stable or positive outlooks, aided by its focus on regulated utility operations. The company is also focused on growing its renewable energy business going forward. Keeping its recent payout cut in mind, PPL expects its dividend will grow alongside its earnings going forward, with management targeting a long-term payout ratio of 60%-65%.

• In 2021, PPL rate base stood at $20.2 billion, excluding the regulated assets from its pending purchase of the Narragansett Electric Company. PPL had $4.9 billion in rate regulated coal-related assets in Kentucky as of 2021, which represents a sizable chunk of its company-wide rate base. The company’s rate base grew by 5.8% in 2021 versus 2020 levels.


In February 2022, PPL announced it was cutting its dividend in half after selling off its UK operations. The company has been using some of the net proceeds from its transactions with National Grid to reduce its net debt load and buy back its stock. Going forward, PPL is targeting a dividend payout ratio of 60%-65%.

PPL roughly cut its dividend in half in February 2022 to compensate for the cash flow and earnings lost when it sold off its UK utility business. The acquisition of Rhode Island’s leading utility, Narragansett Electric Company, will provide PPL with a major source of growth opportunities over the long haul though the company will need a significant amount of funds to make those investments. Looking ahead, management is targeting a post-transaction payout ratio of 60%-65%. Expected growth in PPL’s rate base is expected to drive its earnings growth over the long haul, which in turn should support the company’s dividend growth trajectory. PPL has solid investment grade long-term issuer credit rating (Baa2/A-) with stable or positive outlooks, aided by the stable nature of its regulated utility business. PPL is also repurchasing its stock, using proceeds from its UK divestiture to do so.

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Public Service (PEG) Public Service aims to grow its non-GAAP operating earnings per share by 5%-7% annually through 2025 using estimated 2022 levels as a baseline.


• Public Service is a diversified energy company headquartered in Newark, New Jersey. The company's subsidiary PSE&G was incorporated in 1924 and is New Jersey's largest electric and gas distribution utility, transmission business, investor in renewables and energy efficiency, and appliance service provider. PSEG Power is Public Services’ merchant power generation business.

• Public Service is working to change its fuel diversity. In April 2021, Public Service acquired a 25% stake in the Ocean Wind project, an offshore wind farm located 15 miles off the coast of New Jersey. The goal is to develop a wind farm with 1,100MW of power generation capacity, and the development could provide first power by late-2024 depending on how the permitting and regulatory process goes.

• PSE&G intends to spend ~$14-$16 billion towards capital spending from 2021-2025, though that does not include certain items such as its offshore wind farm investments. The lion’s share of that budget is going towards regulated utilities, and PSE&G's rate base is expected to grow by a 6%-7.5% CAGR during this period. These investments will largely be geared towards modernizing its transmission, electric distribution, and gas distribution infrastructure though its planned renewable energy projects (solar plants, wind farms, EV infrastructure) and smart metering investments are also key here.

• Growth in the rate base of PSE&G is expected to drive earnings growth at Public Service over the long haul. Public Service has historically had a payout ratio in the 55%-65% range. Management believes it is in a favorable position regarding its regulatory environment as its investment programs are aligned with state energy goals. PSE&G plans to keep a lid on O&M expenses to improve its cost structure.

• Public Service expects its non-GAAP operating earnings per share will grow by 5%-7% annually through 2025 versus estimated 2022 levels, aided by forecasted rate base growth and cost control measures. In February 2022, Public Service completed the sale of 6,750 MW of fossil fuel power generation capacity for ~$1.9 billion. Public Service aims to achieve net zero carbon emissions by 2030 and plans to invest heavily in its renewable energy operations to achieve that goal.

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Public Service has been buying back a meaningful amount of its stock, using proceeds received from recent divestments to do so.

Public Service is a diversified energy company in the Northeastern and Mid-Atlantic US and boasts an investment grade credit rating (Baa2/BBB) with stable outlooks. The company has a robust investment pipeline centered around modernizing its transmission and distribution infrastructure and growing its renewable energy generation portfolio. The rate base of PSG&E is expected to grow by a 6%-7.5% CAGR from 2021-2025, which supports Public Service’s earnings growth outlook and ultimately dividend growth trajectory over the long haul. Historically, Public Service has had a payout ratio in the 55%-65% range. We expect Public Service will continue growing its payout going forward, though the firm does have a sizable amount of geographical concentration risk which could create problems down the road. Public Service aims to grow its non-GAAP operating earnings per share by 5%-7% annually through 2025 using estimated 2022 levels as a baseline.


Sempra Energy (SRE) Sempra Energy intends to invest heavily in its majority-owned Oncor unit, the largest transmission and distribution electric utility in the state.


• Sempra Energy is an energy-services holding company whose units develop energy infrastructure, operate utilities, and provide related services to their customers. The company announced a major restructuring plan in December 2020 that involved a stock-for-stock offer for the shares of IEnova, a Mexican energy infrastructure firm, that Sempra Energy did not already own. Sempra Energy created a new business unit, Sempra Energy Partners, which now houses its IEnova operations along with its Sempra LNG operations. Sempra Energy’s other key operations include San Diego Gas & Electric, Southern California Gas Company, and Sempra Texas Utilities (includes its majority stake in Oncor Holdings and its stake in Sharyland Holdings).

• In 2021, Sempra Energy sold a 20% stake in Sempra Infrastructure Partners to KKR for ~$3.4 billion in cash. Additionally, Sempra Energy announced it was selling a 10% stake in Sempra Infrastructure Partners to a subsidiary of the Abu Dhabi Investment Authority for ~$1.8 billion in cash in December 2021.

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• From 2021-2025, the company intends to invest ~$28.6 billion towards capital expenditures at its domestic utility operations along with $3.1 billion on capital expenditures towards Sempra Energy Partners. Using 2020 as a baseline, Sempra Energy forecasts that it will grow the rate base of its US utilities by ~9% CAGR through 2025 with ~70% of its rate base expected to be represented by electric utilities and the remainder by its gas utility operations.

• Sempra Energy has fundamentally restructured its business over the past several years. This process included divesting its South American operations, acquiring a majority stake in Oncor, selling various midstream, solar, and wind assets, having Oncor acquire InfraREIT (which is now a wholly-owned subsidiary of Oncor), and the restructuring process regarding IEnova, Sempra Energy Partners, and Sempra Energy’s LNG business.

• Looking ahead, expected growth at its US utilities operations along with the upside offered by Sempra Energy Partners underpins Sempra Energy’s promising long-term earnings growth outlook. The company plans to continue growing its LNG business going forward the demand outlook for LNG remains robust.

• Sempra Energy has a decent investment grade credit rating (Baa3/BBB+/BBB+) though Moody’s downgraded Sempra Energy’s credit rating in 2020. However, S&P has Sempra Energy’s credit rating on downgrade watch.


Sempra Energy raised a significant amount of cash proceeds by divesting a portion of its stake in Sempra Infrastructure Partners through two different deals.

Sempra Energy operates as an energy services holding company. It cut its annual dividend in 2001, though a lot has changed since then. Sempra Energy’s dividend growth rate has impressed in recent years and we view its payout growth trajectory going forward quite favorably. Expected growth in the rate base of its US utility operations combined with the upside potential its new Sempra Energy Partners unit offers (with an eye towards renewable investments and LNG developments) supports Sempra Energy’s long-term earnings growth outlook. Spending on wildfire mitigation efforts have become relevant after a series of major wildfires in California fundamentally changed the regulatory landscape for utilities in the state. We caution that Sempra Energy’s credit rating is on downgrade watch, though cash proceeds from the sale of a minority stake in Sempra Infrastructure Partners through two deals announced in 2021 should help improve its balance sheet.


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South Jersey Industries (SJI) Southern Jersey Industries announced in February 2022 that it was getting acquired by the Infrastructure Investments Fund for $36 per share in cash through a deal with an ~$8.1 billion enterprise value.


• South Jersey Industries owns regulated natural gas distribution utilities in New Jersey via its SJI Utilities (‘SJIU’) subsidiary which provides natural gas utility services to over 0.7 million residential, commercial, and industrial customers in the state. SJIU is composed of South Jersey Gas Company, which operates in southern New Jersey, and Elizabethtown Gas Company, which operates in northern and central New Jersey. The firm’s SJI Energy Enterprises (‘SJIEE’) subsidiary is composed of its non-utility operations that primarily promote energy efficiency and management activities, clean energy development, and renewable energy production. South Jersey Industries also owns mineral rights in the Marcellus shale play in Pennsylvania.

• Moody’s rates South Jersey Gas Company's credit rating as investment grade (A3) with a stable outlook. According to S&P, South Jersey Gas Company has a decent investment grade credit rating (BBB) as does South Jersey Industries (BBB), both with stable outlooks.

• In February 2022, South Jersey Industries announced that the Infrastructure Investments Funds was acquiring the utility for $36 per share in cash through a deal with an enterprise value of ~$8.1 billion. The transaction is set to close during the fourth quarter of 2022.

• Development of the PennEast Pipeline development, which aimed to connected natural gas supplies produced in the Marcellus shale play in Pennsylvania to New Jersey, was suspended in September 2021. South Jersey Industries owned an economic interest in the project.

• In April 2021, South Jersey announced a plan to reduce the carbon emissions from its operations by 70% by 2030 and eliminate carbon emissions from its operations by 2040. Going forward, the firm invests to invest in projects in the realm of renewable natural gas, green hydrogen, and fuel cells by investing a quarter of its capital expenditure budget towards those initiatives.


South Jersey Industries is getting acquired through a deal set to close in the fourth quarter of 2022, though the firm intends to keep making good on its dividend obligations during this period.

In February 2022, South Jersey Industries announced it was getting acquired for $36 per share in cash by Infrastructure Investments Funds through a deal set to close in the fourth quarter of 2022. Management intends to keep making good on the utility’s dividend obligations during this period. South Jersey Industries, through its subsidiaries, provides energy related products and services and engages in the purchase, transmission, and sale of natural gas.

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Southern Co (SO) Southern Company once again pushed back the completion date of its Vogtle 3 and 4 units at the Vogtle nuclear power plant, with Unit 3 potentially not coming online until March 2023 at the earliest, followed by Unit 4 at the end of 2023.


• Southern Company owns seven electric and natural gas distribution utilities that are as follows: Alabama Power, Georgia Power, Mississippi Power, Atlanta Gas Light, Chattanooga Gas, Nicor Gas, Virginia Natural Gas. The firm also has a growing competitive generation company, Southern Power, along with a fiber optics network and wireless communication service. It serves ~9 million customers with operations across the US. The company was founded in 1945 and is headquartered in Atlanta, Georgia.

• We like that ~90% of Southern Company’s earnings are from regulated subsidiaries, providing its operations with a degree of stability. The company intends to spend ~$41 billion on its capital expenditures from 2022-2026, with 97% of that going towards its regulated utility operations. Grid reliability investments and renewable energy developments are key priorities. Expected annual rate base growth of 6% at its regulated utility business through 2026 (using 2021 as a baseline), a product of its robust capital investment program, underpins Southern Company’s forecast that it can grow its EPS by 5%-7% annually over the long haul.

• Southern Company continues to work towards completing the Vogtle 3 & 4 units at the Vogtle nuclear power plant in Georgia. This development has faced serve cost overruns and delays, though government support has limited the damage to Southern Company’s financial standing.

• Several of Southern Company’s regulated utilities are in high growth regions (in terms of both population growth and economic growth) which promising long-term outlooks which in turn supports Southern Company’s outlook.

• Over the long haul, Southern Company aims to significantly grow its renewable energy operations to adapt to the changing regulatory landscape and various federal and state initiatives. Southern Company aims to achieve net zero emissions by 2050. Its nuclear power plant portfolio complements this strategy. Southern Company’s capital investment pipeline remains robust.

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Once the Vogtle 3 and 4 units are operational at the Vogtle nuclear power plant, Southern Company’s management team expects the firm will be in a solid financial position to increase the annual growth rate in its dividend.

Southern Company has an outstanding dividend track record as the firm has increased its dividend over the past ~20 consecutive years. Looking ahead, Southern Company aims to grow its EPS by 5%-7% annually, supported by expected annual rate base growth of 6% through 2026 (using 2021 as a baseline) at its regulated utilities. Southern Company is also placing a great emphasis on growing its renewable energy business to adapt to the changing regulatory environment and government initiatives. The company’s capital investment pipeline remains robust. Roughly 90% of Southern Company’s earnings are generated by its regulated utilities, providing for a stable earnings profile. We do not think management takes its track record lightly, and the firm will take meaningful measures not to abandon its income-minded investors.


Spire (SR) Spire intends to spend ~$3.1 billion on capital expenditures from fiscal 2022-2026, which is expected to grow its rate base by 7%-8% annually during this period.


• Spire (formerly Laclede) is a public utility holding company. Its two core business operating segments, Gas Utility and Gas Marketing, provide natural gas services to ~1.7 million residential, commercial, and industrial customers in Mississippi, Missouri, and Alabama. Spire’s regulated utilities include Spire Missouri, Spire Alabama, Spire Gulf, and Spire Mississippi, and its non-regulated operations are represented by Spire Marketing and its other businesses. The company was founded in 1857 and remains a gas company at its core.

• Spire is targeting long-term annual EPS growth 5%-7% on the back of expected rate base growth. Its regulated utilities generate the lion’s share of its operating income, providing for a stable earnings profile. Spire intends to spend ~$3.1 billion on capital expenditures from FY2022-2026 and that robust investment program is expected to generate annual rate base growth of 7%-8% during this period. A target dividend payout ratio of 55%-65% should keep the dividend growing roughly in line with earnings.

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• Spire’s capital spending program is built around modernizing its natural gas distribution infrastructure, with over 95% of that going towards its long-term pipeline replacement programs to maintain the reliability of the grid.

• By 2035, Spire aims to reduce methane emissions from its operations by 73% versus 2005 levels, aided by its robust capital investment program.

• Its Spire STL Pipeline, after commencing commercial operations in November 2019, is under pressure. In June 2021, the US Court of Appeals for the D.C. Circuit vacated a 2018 certificate issued by FERC that allowed the pipeline development to proceed. Legal and regulatory proceedings are ongoing.


Spire has grown its payout over the past 15+ consecutive years, aided by the stability of its regulated utility operations.

Spire has continuously paid out dividends since 1946 and has increased its payout over the past 15+ consecutive years. The company targets a payout ratio of 55%-65%, indicating Spire’s dividend should grow alongside its expected EPS growth going forward. The company’s senior unsecured credit rating is investment grade (Baa2/BBB+) with a stable outlook, supporting its ability to tap capital markets for funds at attractive rates. Expected annual rate base growth of 7%-8% from 2022-2026 is expected to grow Spire’s EPS by 5%-7% annually during this period. The company’s capital investment pipeline remains robust, and Spire operates in geographically attractive areas with promising outlooks.


WEC Energy (WEC) WEC Energy Group aims to exit the coal-fired power generation space by 2035 by retiring coal-fired power plants and converting others to run on natural gas.


• WEC Energy Group is an electric and natural gas utility holding company that, through its subsidiaries, serves 4.6 million customers in Wisconsin, Illinois, Michigan, and Minnesota. The firm also owns ~60% of American Transmission Co, an electric transmission company. WEC Infrastructure is WEC Energy’s merchant power generation business which primarily owns economic interests in wind farms across the Midwest. WEC Energy, through predecessor companies, traces its roots back to 1896. The company is headquartered in Milwaukee, Wisconsin.

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• WEC Energy targets a payout ratio of 65%-70% and has grown its dividend at a healthy clip over the past several years. Merger driven initiatives from its 2015 acquisition of Integrys significantly improved WEC Energy’s cost structure. That included savings from consolidated vendor and supplier contracts and increased leverage in negotiations, consolidating IT infrastructure, and the roll out of advanced metering functionality and enhanced mobile options for customers.

• The company's capital budget calls for investing ~$17.7 billion from 2022-2026 which is expected to grow its rate base by 7% annually through 2026 using 2021 levels as a baseline. WEC Energy intends to invest heavily in solar plants, wind farms, and battery storage assets over the coming years to adapt to the changing regulatory environment. The firm is also modernizing its gas-fired power plants by retiring older and less economic operations and building new, far more efficient facilities. 100% of WEC Energy’s capital budget during the 2022-2026 period is going towards its regulated utilities and its contracted renewables business, with a focus on grid reliability and renewable energy power generation projects.

• WEC Energy targets long-term annual EPS growth of 6%-7%, aided by expected growth in its rate base and its growing renewables business. By 2035, WEC Energy intends to exit the coal-fired power generation space as part of its plan to become net carbon neutral by 2050.


Over the long haul, WEC Energy aims to grow its EPS by 6%-7% annually, aided by its robust capital investment pipeline which is forecasted to grow its regulated utilities and contracted renewables business at a steadily clip going forward.

A lot has changed since WEC Energy Group was forced to cut its payout back in 2000. In 2015, WEC Energy acquired Integrys which enabled the firm to significantly improve its cost structure and long-term growth outlook. WEC Energy expects to grow its EPS by 6%-7% annually over the long haul as its capital investment pipeline remains robust, which is expected to grow its rate base by 7% annually through 2026 using 2021 as a baseline. Efforts to aggressively expand its renewables business further supports WEC Energy’s earnings growth outlook. As the company targets a payout ratio of 65%-70%, its dividend should grow alongside its earnings. Moody’s rates WEC Energy’s senior unsecured credit rating as investment grade (Baa1) with a stable outlook, and Fitch rates the company’s Issuer Default Rating at investment grade (BBB+) with a stable outlook.


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Xcel Energy (XEL) Xcel Energy plans to spend ~$26 billion on capital expenditures from 2022-2026, which is expected to grow its rate base by a ~6.5% CAGR during this period using 2021 as a baseline, with room for upside should additional projects get sanctioned.


• Xcel Energy is a major US electric and natural gas utility that operates in eight states (covering portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin). The company provides a portfolio of energy-related products and services to 3.7 million electricity customers and 2.1 million natural gas customers. Xcel Energy also owns electric transmission assets. The company was founded in 1909 and is based in Minneapolis, Minnesota.

• Xcel Energy plans to spend ~$26 billion on capital investments from 2022-2026, with almost 60% of that going towards its electric transmission and distribution operations. Its capital investment pipeline is robust. Renewable power generation projects are a top priority. Xcel Energy has identified $1.5-$2.5 billion in additional capital investment opportunities during the 2024-2026 period it may embark on.

• Through its large capital investment program, Xcel aims to grow its rate base by a ~6.5% CAGR through 2026 (using 2021 as a baseline) under its base case capital investment budget, or ~7.3% CAGR if the company’s incremental projects are approved. Expected rate base growth is expected to grow Xcel’s EPS by 5%-7% annually over the long haul. The company places a great emphasis on controlling its O&M expenses.

• Xcel Energy aims to provide net carbon neutral electricity to its customers by 2050, a plan that involves the firm completely exiting the coal business by 2034. Massive investments in wind farms, solar plants, and battery storage assets are expected to make this possible.

• Xcel Energy has a solid investment grade senior unsecured (Baa1/BBB+/BBB+) credit rating.


Xcel Energy is focused on replacing coal-fired power generation capacity with power generated by wind farms and other renewable energy sources, and its capital investment pipeline remains robust which underpins its promising growth runway.

Over the long haul, Xcel Energy aims to grow its EPS and dividend by 5%-7% annually. Earnings growth is supported by Xcel Energy’s robust capital investment pipeline and initiatives to keep a lid on its O&M expenses. Xcel Energy intends to aggressively grow its renewables business going forward, with an eye towards wind farms, solar plants, and battery storage assets. Most of its operations are in regions with high wind capacity factors, which supports Xcel Energy’s renewable growth strategy. Additionally, these investments will better position the firm to adapt to the changing regulatory landscape. Xcel Energy aims to provide net carbon neutral electricity to its customers by 2050. The firm targets a payout ratio of 60%-70% over the long haul.

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